The world's largest bag and luggage maker ACE Group will move its headquarters from Osaka, Japan, to Shanghai tomorrow, banking on a preferential government policy.

　　The group invested 95 million yuan (US$11.5 million) to establish a location on Haining Road, Hongkou District. The 16-story building will host ACE Group's new headquarters and its domestic sales and exhibition center.

　　Yorinaga Nishiura, general manager of ACE Group (China) Co Ltd, said yesterday that Shanghai beat Hong Kong for the new headquarters due to its strong manufacturing capacity.

　　"Hong Kong used to be a heaven for foreign exporters. But we believe that Shanghai has greater potential in the future," Nishiura said.

　　The company has opened 10 factories and a logistics center in the city since 1988. Its annual revenues reached 800 million yuan last year.

　　About 10 million bags and suitcases, or two-thirds of its total production worldwide, are made in Shanghai annually.

　　More than 70 percent of the products are exported.

　　"We expect domestic sales to increase by 20 percent annually, while export may rise 10 percent," Nishiura said.

　　"In addition, we will further localize our products' design."

　　The Hongkou government's preferential policy regarding the bag and luggage industry is expected to boost the company's growth.

　　Hongkou District is the city's traditional production center for bags and leather goods.

　　Pan Junwei, a Hongkou district government official, said the district is aiming to build up a sales and distribution center for bag and luggage manufacturering companies by 2010.

　　"Sales in the industry are expected to grow by 10 to 13 percent annually," Pan said.

　　ACE Group's sales accounted for about 20 percent of the city's total last year.

　　Other 10 luggage companies registered in Hongkou District contributed 5 percent of the city's total sales.

　　Most of their products are for exports.